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Failing by a Wide Margin: Methods and Findings in the 2003 Social Security Trustees Report

On March 17, 2003, the trustees of the Social Security program
released their annual report on the system’s financial status. Many
observers took the report’s extension of the trust fund’s solvency
one year to 2042 to mean that Social Security’s financial health
had improved. In fact, Social Security’s actuarial balance declined
and its cash flow deficits over the next 75 years increased to
$25.33 trillion (in 2003 dollars).

More important, the report contained significant new
methodologies that are central to the debate over personal
retirement accounts.

The trustees now measure Social Security’s deficits over the
infinite horizon, providing remedies to the previous 75-year
scoring window that substantially understates the costs of the
current program and overstates the costs of personal account plans.
Under this new perpetuity benchmark, the present value of Social
Security’s cash flow shortfalls totals $11.9 trillion, versus only
$4.9 trillion over 75 years. To cover Social Security’s cash
deficits permanently would demand an immediate tax increase equal
to 4.47 percent of payroll.

The 2003 report also includes a “stochastic analysis” accounting
for the variability of the economic and demographic factors
affecting Social Security’s finances, finding there is less than a
1-in-40 chance of Social Security remaining solvent for even 75
years without reform.

The 2003 Trustees Report shows that Social Security’s cash
deficits are large, growing, and unlikely to fix themselves without
action. Only personal account proposals have been certified to
eliminate Social Security’s multitrillion dollar cash
shortfalls.